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Wednesday, April 27, 2011

Day 198 - 5 Painless Ways to Avoid Debt

It's the inaugural edition of Guest Writer Wednesday! If you would like to submit content for The $60K project, check out the guest writer guidelines and send me an email if you are interested.

Day 198 - 5 Painless Ways to Avoid Debt

Joy Paley is a guest blogger for My Dog Ate My Blog and writes on the online psychology degree for Guide to Online Schools.

There are many great, intense commitments that you can make to stay out of debt, like taking time off from college to work, or selling your car and committing to a much longer commute. Besides these big debt busters, however, there are many little, daily steps you can take to avoid debt altogether. Check out these five small rules to live by that will become debt-lowering habits in no time.

1. Withdraw a Week’s Worth of Discretionary Spending—Then Leave Your Cards at Home

Putting a latte or bag of chips on your debit card can really add up throughout the week. Instead of carrying your card with you everywhere, withdraw your budgeted discretionary spending cash on Sunday. Tell yourself that that is all the money you have to spend throughout the week, and once it’s gone, it’s gone. This will keep you from overspending, and from buying things you don’t really want.

2. Autowithdraw $100 a Month to Your Long-Term Savings

Your long-term savings account, also known as your emergency fund, is there to cushion you from a number of large, unexpected expenses. Whether your car needs a new alternator or you need to fly home to visit a sick relative, your long-term savings is where the funds will come from. This fund will help end a reliance on credit cards for emergency spending. Set up an automatic withdrawal from your primary account to your long-term savings for at least $100 on a monthly basis, to keep you from forgetting to add to the account and to painlessly help it grow over time.

3. Want Something? Wait a Month

For all discretionary purchases over a limit of $20, don’t buy on a whim. Set up a reminder in your iCal, Google Calendar, or pencil it into your planner a month from today. What might seem to be necessary or highly desirable right now might not look so rosy after you’ve had a month to think about it. In the off chance that it still looks great at the end of your waiting period and fits into your budget, feel free to buy it.

4. Set Low Limits On Your Credit Cards

Those who have a habit of extensive credit card use may need a little more help when it comes to avoiding overspending. To cut the dragon off at the head, give your credit card company a call and request a low spending limit, of say $200-300 dollars on your card. This will take away the option to drastically overspend at all.

5. Get High-Deductible Health Insurance and an HSA

No matter how much you budget and plan, it’s hard to save enough to cover the costs of a serious medical emergency, if you don’t have health insurance. And these days, with more and more people working in a job that doesn’t provide health insurance, this is a real concern. Even if you’re young and cash-strapped, it makes sense to shell out for a relatively cheap, high-deductible insurance plan if you don’t have employer health insurance. You can compare plans on eHealthInsurance—they range from $40 and up, depending on your age. Once you’ve got your high-deductible plan, you can open a Health Savings Account, a special tax-sheltered account that you can use for healthcare costs. Trust me, your $60 monthly premium and $3,000 deductible will be the least of your worries if you get into an accident and rack up tens of thousands worth of medical bills.